Profit potential looks good for corn

This is a good year to be a farm economist, says Nathan Smith of the University of Georgia.

“This year, when we look at the benefits and the potential for this crop, it looks as though there will be good opportunities on the price side,” he said during the recent Georgia Corn Workshop held in Tifton.

Georgia’s final corn production numbers for 2007 came in at just more than half a million acres with an average yield of 130 bushels per acre, says Smith. The acreage was almost double that of a year ago.

As growers approach 2008, it’s important to consider several factors when budgeting for corn production, says the economist. “You must first decide what your expected or planned yield will be, in terms of what you’ll use in the budget. Then, you must consider your expenses,” he says.

Economists completed the University of Georgia budgets this past December, says Smith, and they’re already out of date concerning the cost of fertilizer. “The cost of fertilizer is changing almost weekly or daily. With the high fuel costs and the cost of making fertilizer and transporting it, the cost of fertilizer itself has increased tremendously. One other factor affecting the high cost of fertilizer that we might not think about is the low value of the dollar. That helps us on the export side but it’s hurting us on the input side because a lot of our fertilizer comes from out of the country now,” he says.

Diesel fuel is up by at least one-third over this time last year, and farmers probably will see price increases in seed and chemicals, says Smith.

When putting together the crop budgets, Smith says he compared the costs of this year versus last year. “Seed costs also show a pretty good increase for 2008. Part of that is due to the increase in the seed itself, but part of it is also due to the way in which seed will be sold this year, with a seed treatment being on all corn seed. That is figured into the cost, moving the insecticide out of chemicals and into seed,” he says.

“Fertilizer continues to increase, fuel is increasing, and chemicals are showing some increases,” says Smith. “When you look at total variable costs, on conventional dryland corn, we were estimating $190 per acre last year and about $250 per acre this year. Your fixed costs are roughly the same. Irrigation costs turned out to be much higher than we estimated last year because of the drought. This year, our budgets are reflecting the higher cost of diesel along with a little higher interest costs. If it cost $420 per acre last year, it could go to $520 to $530 per acre this year on variable costs for irrigated corn.”

University budgets, he says, do not represent an average. “We sit down with our specialists to look at recommendations, and that’s how we come up with the budgets. Some of the costs will be lower than your situation, some will be higher, and some will be in line. The biggest difference in individual situations will be the fixed-cost category, depending on your machinery,” he says.

With dryland corn, the budget uses an average yield of 85 bushels per acre with total variable costs of just under $250 per acre. That equals a break-even price received of $2.90 per bushel. When fixed costs are added, the total production cost is about $313 per acre with a break-even price of $3.68.

For irrigated corn, the variable cost is $538 with an average yield of 185 bushels per acre. With fixed costs added, the total production cost is $724 per acre with a break-even price of $3.91 per bushel.

“Futures are at $5, depending on your basis, so we’re actually seeing a return above total costs this year. The one cost not included in these budgets is land rent. We don’t add land rents in these budgets because they vary across the state. If we use a price of $4 per bushel, we need 62 bushels on dryland and 135 on irrigated. To cover all costs, you’d need 78 bushels on dryland and 181 bushels on irrigated. Given that the market is at about $5, the outlook is good on covering your costs this year,” says Smith.

This past year, the university began compiling strip-till budgets, he says. “We have yields at about the same level, but costs are higher on strip-till mainly because of putting in the cover crop. Variable costs are higher. But there aren’t as many equipment charges in corn as in other crops.

“According to our budgets, strip-till comes out a little more expensive on dryland corn. On irrigated, the one assumption is that moving to strip-till may save you one irrigation.”

Smith advises growers to use the costs contained in the budgets when negotiating land rent this year. “FSA will ask for written leases this year, so you have to come up with a negotiated written lease for your land rent,” he says.

Smith says his initial projection is that corn acreage will decrease some in Georgia this year. “But with good weather in February, and prices at $5, we may be close to 500,000 acres again. Some cotton will be lost to peanuts and soybeans. Soybean acreage will go up and tobacco acreage will go down. Winter wheat seedings are estimated at 480,000 acres, and you can expect that a lot of soybeans will in go in behind that.”